Essential guide to subsidised and guaranteed loans

The Government's Growth Guarantee scheme helps promising businesses that cannot provide the security needed for a conventional bank loan. This scheme replaced the Recovery Loan Scheme and the earlier Enterprise Finance Guarantee.

Alternatively, other supported loan schemes (loans subsidised by government or local agencies) may reduce your borrowing costs. Your eligibility depends on where your business is and how you will use the financing.

Growth Guarantee Scheme

Are you likely to qualify for other schemes?

Applying for a loan

Local schemes

Regional and national schemes

Where to get help

1. Growth Guarantee Scheme

The Government's Growth Guarante Scheme provides a government guarantee against default on loans from banks and other financial institutions.

The scheme is run by the British Business Bank for the Department for Business and Trade. It helps businesses that cannot access normal commercial lending to borrow, by providing a government guarantee for 70% of the value of a loan.

The Growth Guarantee Scheme can be used for amounts of between £1,000 and £2 million

• For term loans, repayment must be between three months and six years. For overdrafts and most other types of borrowing, the maximum term is three years.
• The guarantee helps protects the lender if you default. However, even with this guarantee, the lender may also ask you for other security such as a personal guarantee.

Your annual turnover must be no more than £45 million

• Most types of business are eligible, though there are a few restrictions in a few sectors (including agriculture).

The scheme operates in partnership with a number of banks and other lenders

• To qualify, you must demonstrate to your lender that you have a viable business plan.
• When you discuss your borrowing requirements with one of these approved lenders, they will advise you whether your business is eligible.

The interest rate and fees you pay depend on the lender and the type of borrowing

• Their charges will take into account the costs they have for using the Government guarantee (typically 1.5% of the amount covered).

2. Are you likely to qualify for other schemes?

Each supported loan scheme has its own eligibility criteria. These tend to fall into the same four categories - purpose, location, industrial sector or the availability of extra financing.

Broadly speaking, all supported loan schemes are intended for the purpose of creating or protecting jobs

• You need to show your project will make a positive contribution to employment. This could include training and skills development.
• Loan schemes favour projects with a high growth potential.
• Loan schemes are often only available for capital projects such as investment in plant and equipment or computer networks, but not where conventional asset finance is available.
• The gradual process of company development does not normally qualify.
• Purely local consumer services, such as shops, are likely to be excluded.

You may be eligible if you intend to establish your business in an economically depressed location

• This is particularly so if you are going into an area with a high level of unemployment.

Most loan schemes favour particular industries

• These are usually in the manufacturing and industrial sectors.
• Crafts, tourism, and distribution operations also receive some support.

Most schemes insist that extra financing is available alongside the loan

• You usually have to show commitment by providing part of the finance yourself.
• More detailed criteria for the most commonly available loan schemes are shown in local schemes and regional and national schemes.

3. Applying for a loan

Some schemes are operated by banks and other commercial lenders

• Apply for these schemes as you would apply for a conventional loan.
• The lender decides whether your proposal should be taken any further.

Local schemes usually involve simple application procedures

• You may have to wait until the next meeting of the committee that allocates the loan fund. Many committees meet every month or each quarter to assess applications.

Regional schemes may have more complex application procedures

• The lender may ask you to submit a simple Stage 1 application so that your chances can be evaluated.
• You can then decide whether or not to proceed with a full Stage 2 application.

4. Local schemes

Local business support organisations and councils can help you identify schemes in your area

• Most of the UK's larger cities have schemes which provide loans.

Each scheme has its own priorities and lending criteria

• Loans may be targeted at a particular industry sector (eg businesses in the creative industries) or businesspeople from a particular background (eg women, or people with a disability or from minority ethnic communities).
• Some schemes specifically target businesses with a social purpose rather than those that are strictly for profit.
• Loans may be available for start-ups, existing businesses or both.

Loan amounts and terms can vary

• Schemes typically offer relatively small loans of up to £10,000 but there are exceptions.

5. Regional and national schemes

Businesses in Wales may be able to borrow from Development Bank of Wales

• Micro loans of between £1,000 and £100,000 are available for businesses that can demonstrate growth potential.
• Larger amounts of development capital are also available, as loans, equity or a combination of both.
• Contact Development Bank of Wales (0800 587 4140).

Businesses in Scotland have limited borrowing options

• The Scottish Government is no longer funding the Scottish Growth Scheme.
• Funding may be available through Scottish Enterprise

There is a Northern Ireland Small Business loan funds

• Loans from £10,000 up to £100,000 are available for businesses which have been trading for at least two years.
• Contact the Northern Ireland Small Business Loan Fund (0800 988 2879).

Regional funding in England is provided by Business Board Network Growth Hubs

• Each Growth Hub offers its own funding and support programmes.

Businesses in former steel areas may be able to borrow from UK Steel Enterprise

• Loans are provided to new and existing businesses based in or relocating to one of the designated steel areas.
• Fixed rate loans of up to £100,000 for start-ups and £200,000 for growing businesses are available, typically for a term of three to five years.
• Security and personal guarantees are not usually required.
• Contact UKSE.

The British Business Bank provides access to loan finance

• Start-up loans of up to £25,000 are provided through the Startup Loan company (0344 264 2600).
• A range of British Business Bank partners offer finance for existing businesses.
• The British Business Bank also runs the Growth Guarantee scheme.

Various schemes target particular groups or sectors of the community

• Businesses that cannot get financing from a mainstream lender may be able to borrow from a 'responsible lender' in their area.
• The Prince's Trust Enterprise programme provides small start-up loans for new businesses started by individuals aged between 18 and 30.

6. Where to get help

Business support organisations can help you

• They can identify loan schemes, grants and any other funding your business may qualify for. For example, loan schemes run by local authorities.
• Contact your local enterprise agency (for start-ups) or Growth Hub.
• Search for support and finance schemes in your area.

If necessary, get professional help

• Some accountants and consultants specialise in preparing loan applications. Check their record of obtaining loans for businesses like yours.
• Negotiate the fees. Flat-rate fees are less expensive, but must be paid even if your application is unsuccessful and you get no loan.

Avoid loan cowboys

• Some companies will charge you a fee to identify supported loans you may qualify for.
• There is no guarantee you will qualify, and exactly the same information is generally available free of charge or at a heavily subsidised rate through your local business support organisation.
• Some companies will guarantee to return your fee if they fail to arrange a supported loan for you. Read the small print. The conditions they impose often make this kind of guarantee worthless.